Huawei and ZTE "cannot be trusted," says House Intelligence Committee.

Huawei and ZTE are two giant Chinese tech companies frequently targeted by accusations of industrial espionage, intellectual property theft, and even providing backdoors for network attacks to the Chinese military. Now, the two are the focus of a House Permanent Select Committee on Intelligence report issued today. The report finds that the two companies "cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems."

Huawei is a $32 billion networking and data center infrastructure company; ZTE provides both telecommunications infrastructure and cellular handsets. Both have been frequently accused of having close ties to the Chinese government and to the People's Liberation Army (China's military).

Those connections got Huawei banned from bidding on Australia's national broadband effort. Now, members of the House Permanent Select Committee on Intelligence are calling for the White House and the rest of Congress to take action. The committee wants to place broad-ranging restrictions on the activities of the companies because of the potential threat their hardware could pose if it was used for "cyber-espionage" or attacks on infrastructure. They're urging US telecommunications companies and other network providers to avoid the two companies and "seek other vendors for their projects."

For now, Huawei and ZTE have proposed a technical solution to the security questions concerning their hardware. In the United Kingdom, Huawei's hardware and software is independently tested by the Cyber Security Evaluation Centre (and by technicians with government security clearances) before it is authorized for use in the national telecommunications infrastructure. The Select Committee's investigation did not delve into the security of any of ZTE's hardware or software products—"the expertise of the Committee does not lend itself to comprehensive reviews of particular pieces of equipment," as the report noted. But the Select Committee's report challenges that approach, saying that evaluating individual components would "provide a sense of security," but a false one. "The task of finding and eliminating every significant vulnerability from a complex product is monumental. If we also consider flaws intentionally inserted by a determined and clever insider, the task becomes virtually impossible."

Frenemies of the State

Instead, the investigation focused on whether the companies themselves could be trusted to comply with US and international law—such as intellectual property laws and sanctions against Iran—and to what degree they were the puppets of the Chinese Communist Party, government officials, and the Chinese military. In each of its areas of inquiry, the committee found plenty of reason to withhold trust. Much of what the two companies provided in the way of answers failed to be reassuring, or even clear.

The committee's report cited the evasiveness of the answers from the two companies' executives as a major concern, particularly when it came to questions about the role that the Chinese military and Communist Party play in the operation and financing of the companies. Neither company would reveal documentation of their operations in response to committee requests.

ZTE said that such information was a "state secret" and could not be provided without approval of the Chinese government. The company revealed the names of 19 members of its internal Party committee—which included several executives and corporate board members—under the condition that they not be published, fearing retaliation by the Party or the Chinese government.

Huawei would only say it “maintains normal commercial communication” with the government. That claim rang hollow based on the historical ties between the company and the Communist Party leadership (Huawei's founder has played a leadership role in the Party). And evidence from other sources suggests the company is a "national champion"—a most-favored company in China that receives the financial backing of the government to break into a global market.

Lawbreakers

The committee also found major areas of concern with regard to how well the two companies, which both operate US subsidiaries, have complied with US and international law. Huawei has been repeatedly accused of intellectual property theft, and both companies are suspected of reselling export-controlled technology to Iran.

Neither company would provide documentation to back up assertions that they had complied with US laws covering controlled technology or intellectual property acquired from US companies. In fact, Zhu Jinyun, ZTE’s senior vice president for the US and North America Market, acknowledged the company may have destroyed evidence related to its dealings with Iran and is conducting an internal review.

In the report, the committee accused Huawei of "at the very least, reckless disregard for the intellectual property rights of other entities," citing allegations of trademark and patent infringement, even outright technology theft. Some reports presented to the committee alleged Huawei of a range of other illegal activity: bribery, immigration violations, use of pirated software in Huawei's products, and discrimination against non-Chinese employees.

The patent dispute with Cisco was a particular focus of the committee's wrath. "During the hearing on September 13, 2012, (Huawei Corporate Senior Vice President) Charles Ding refused to answer the clear question of whether Cisco code had ever been in Huawei equipment," the report states. "Mr. Ding’s obstructionism during the hearing undermines Huawei’s claims that it did not violate Cisco’s patented material."

In its own defense, Huawei apparently violated intellectual property laws: "The Committee is in receipt of a Huawei slide presentation that was provided to Capitol Hill offices that itself violates copyright obligations by knowingly using proprietary material from an outside, nonaffiliated consulting firm."

Another area of concern was the nature of the activities of the two companies' US subsidiaries. Neither Huawei nor ZTE would give full details on the operations of their US subsidiaries, including the degree to which their hardware has already been installed as part of the Internet and telecommunications infrastructure of US customers.

ZTE's executives claimed that 95 percent of the company's business in the US was in cellphone handsets, with the rest in cellular infrastructure. But that's not the long-term goal of the company, which now has 300 people working at five research and development centers in the US.

Zhu told the committee that "the company was willing to lose money on projects in the United States to get a foothold in the United States and to understand the technology and standards in the United States," according to the report. But in later testimony, he reversed himself, saying the company doesn't deliberately underbid.

Victims of profiling?

For their part, the executives of the companies claim they've been set up for a fall. They point out that all companies in China are required to have internal Party Committees, and by the nature of Chinese law have limited transparency. In a statement issued by Huawei in advance of the publication of the report, the company complained that members of the Intelligence Committee had "been committed to a predetermined outcome," making up their minds about the two companies before they investigated them. To prove their preconceived case, Huawei alleges, the committee's report "employs many rumors and speculations to prove non-existent accusations."

Huawei executives claimed that the company had the exact same supply chain issues as every technology company that manufactures its hardware in China, and that Huawei and ZTE shouldn't be singled out. "We have to suspect that the only purpose of such a report is to impede competition and obstruct Chinese (information and computer technology) companies from entering the US market."

To be fair, many of the points used against the two companies in the report seem to stretch the facts to meet the case. The report, for example, called statements by Huawei about its sales to the military "inherently contradictory." The company claims to develop technology for "civilian purposes only," while at the same time saying one tenth of a percent of its sales go to the People's Liberation Army. Those sales may even include "special network services to an entity (a Huawei employee) believes to be an elite cyber-warfare unit within the PLA." But China could say the same about Hewlett-Packard, which currently operates the Navy-Marine Corps Intranet on behalf of the US Navy.

While there's certainly a set of larger political issues at work, the evidence presented in the report gives plenty of room for reasonable doubt about the companies' motives in the US beyond simple market domination. "Based on available classified and unclassified information," the report concluded, "Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat."

The committee called for an expansion of the powers of the Committee on Foreign Investment in the United States to block acquisitions by Huawei and ZTE. It also asked for further investigations by the US government into their unfair trade practices and other potentially illegal activities. The report recommended that Chinese companies take measures to "quickly become more open and transparent"—including listing themselves on US or European stock exchanges and complying with their reporting requirements.

Honestly, I think its' probably election year showmanship, at least for Huawei. Dell, Samsung, and Apple make their products next door, so what's stopping the PLA from taking a pleasant walk down the block and knocking?

And if Cisco corporate was involved, I'm sure there were plenty of dirty American hands in whatever secret spy scandal there was behind ZTE.

I don't know what they do in the great Northwest but DC is a silly place.

I like that the US Government is concerned about large Chinese Government influence in ZTE/Huawei meanwhile the US strong-arms Sprint into dropping its contracts with Huawei. Yeah, only China picks the winners and losers in their economy...

Is there a company of any significant size in china that doesn't have close ties to the government?

A valid question, I think.

My own query: Is there a company of any significant size in China that has shown any willingness to do more than pay lip service to US patent and copyright laws?

My question is probably less valid but I really can't remember seeing anything from any large Chinese corporation that made me think they cared about any law they thought they could skirt successfully.

Honestly, I think its' probably election year showmanship, at least for Huawei. Dell, Samsung, and Apple make their products next door, so what's stopping the PLA from taking a pleasant walk down the block and knocking?

Slight difference is directed infiltration. If you say just start putting backdoor devices on Dell computers lets say. You just increase the haystack you're trying to find the needle. With concentrating on highend routers you have a better shot. Or lets put this into a scenario. It would be easier to implant ATM machines over Dell computers to steal account information. You'd have much less data to have to sort through.

meanwhile the US strong-arms Sprint into dropping its contracts with Huawei. Yeah, only China picks the winners and losers in their economy...

You think that the motivation in regards to Sprint was solely economic? The Huawei rabbit hole goes much deeper and the issues, many of which are not public, are far more nefarious. I still can't believe the British approved its use for as much as they did.

Is there a company of any significant size in china that doesn't have close ties to the government?

That's doubtful. Most of the big companies in China are :(1) Government owned in part. or(2) PLA owned, at least in part—the Army has spun off a number of companies from its own industrial complex, or(3)subsidized by the government, or (4)has someone in the government who is their protector to handle competitors' political maneuverings, to(5) all of the above.

meanwhile the US strong-arms Sprint into dropping its contracts with Huawei. Yeah, only China picks the winners and losers in their economy...

You think that the motivation in regards to Sprint was solely economic? The Huawei rabbit hole goes much deeper and the issues, many of which are not public, are far more nefarious. I still can't believe the British approved its use for as much as they did.

Someone I know who has just come back from working with them for 10 years said to me: "Everything you've heard about this company is true".

There you go.

While this post is not substantive, and really I can't offer anything substantive either, but I will say I've been told the same thing about Huwaei by engineers I know who have worked with them. And there is plenty of documented evidence that they were the largest factor in Nortel's fall. There is no way I would trust them.

ZTE I know virtually nothing about aside from them having some low end handsets.

Also, the fact that virtually all major Chinese companies are government connected, while a 'set up' in that it puts them at a disadvantage when asked to prove independence, is itself irrelevent. Just because its the way business is done in China does not mean the US should say "Oh, ok, thats fine then". If Chinese corporations, and their government, want to do business in the USA, they will have to find a way to create the kind of firewall necessary to permit customer trust. If thats not possible, well, then they won't be doing much business here. The US is not alone on this, the article mentioned AU, but Canada and several EU countries are also investigating Huwaei for similiar reasons. Its not misguided patriotism at work here.

meanwhile the US strong-arms Sprint into dropping its contracts with Huawei. Yeah, only China picks the winners and losers in their economy...

You think that the motivation in regards to Sprint was solely economic? The Huawei rabbit hole goes much deeper and the issues, many of which are not public, are far more nefarious. I still can't believe the British approved its use for as much as they did.

Urrr... Any evidence of that?

The committee that issued this report stated they had more substantive efforts and that there was far more evidence of these companies behaviour than what can be publicly released.

meanwhile the US strong-arms Sprint into dropping its contracts with Huawei. Yeah, only China picks the winners and losers in their economy...

You think that the motivation in regards to Sprint was solely economic? The Huawei rabbit hole goes much deeper and the issues, many of which are not public, are far more nefarious. I still can't believe the British approved its use for as much as they did.

That is the UNCLASSIFIED report. You can use your imagination from there, much of it will end up being true. Why would you doubt such a thing from a company that is hard to distinguish from the state party and PLA itself and operated in a country that is notorious for spying on its own people? Yes, admittedly we're not always much better (http://en.wikipedia.org/wiki/NSA_warran ... ontroversy).

meanwhile the US strong-arms Sprint into dropping its contracts with Huawei. Yeah, only China picks the winners and losers in their economy...

You think that the motivation in regards to Sprint was solely economic? The Huawei rabbit hole goes much deeper and the issues, many of which are not public, are far more nefarious. I still can't believe the British approved its use for as much as they did.

That is the UNCLASSIFIED report. You can use your imagination from there, much of it will end up being true. Why would you doubt such a thing from a company that is hard to distinguish from the state party and PLA itself and operated in a country that is notorious for spying on its own people? Yes, admittedly we're not always much better (http://en.wikipedia.org/wiki/NSA_warran ... ontroversy).

Based on a cursory glance of the accusations though, there does seem to be a reasonable amount of material behind to back up the concern. I find myself morally conflicted on this one, is it fair to have preconceptions based on their ties to the Chinese government? I want to say both no and yes on that.

That is the UNCLASSIFIED report. You can use your imagination from there, much of it will end up being true. Why would you doubt such a thing from a company that is hard to distinguish from the state party and PLA itself and operated in a country that is notorious for spying on its own people? Yes, admittedly we're not always much better (http://en.wikipedia.org/wiki/NSA_warran ... ontroversy).

Will file that under the too read list. First thought about your link though is that it's an oxymoron. Intelligence and House.gov don't mix.

The ZTE Score M is an Android 2.3.4 (Gingerbread) phone available in the United States on MetroPCS, made by Chinese telecom ZTE Corporation.

There is a setuid-root application at /system/bin/sync_agent that serves no function besides providing a root shell backdoor on the device. Just give the magic, hard-coded password to get a root shell:

Not surprised at all. It's anecdotal, but every single Chinese immigrant I've conversed with on similar topics has had no hesitation in confirming their belief that any decent-sized business would be actively working for the interests of the Chinese government, whether they wanted to or not.

Is there a company of any significant size in china that doesn't have close ties to the government?

A valid question, I think.

My own query: Is there a company of any significant size in China that has shown any willingness to do more than pay lip service to US patent and copyright laws?

My question is probably less valid but I really can't remember seeing anything from any large Chinese corporation that made me think they cared about any law they thought they could skirt successfully.

With the number of ongoing patent suits in the US, it's not just Chinese companies that think that...

In looking at the actions of China in the past decade, and all the veiled rumors and hints of espionage and cyber attacks emanating from that country, I see a lot of puzzle pieces fitting together to form the basis of a planned-out, coordinated attack on our nation. Undermine our economy, steal our military secrets, and build the basis for a future assault on our country's basis of power.

What does China have to gain? A whole lot. They gain the status of having knocked off the biggest kid on the block, they achieve the standings of having the world's largest economy, and they have nullified our ability to keep them from achieving some of their long-standing goals, like reconquering Taiwan, taking the Spratly Islands, and making South Korea, Japan, and Russia submit.

What does China have to lose? Their largest trading partner, for the moment. As their society shifts from a developing nation into a fully modern country they will start turning their exports into domestic products, as more and more people have the prosperity to use items that used to be manufactured solely for overseas consumption. While the disruption of their economy will be painful in the short term, long term they have a whole lot to gain from it.

Unlike the U.S., China has the kind of government that facilitates the development of a decades-long calculated plan to unravel their enemies from within. The U.S. can't do that because it doesn't have control over the country that China exerts. The U.S. is also hindered by policy changes brought on by political shifts every 4-8 years in which the focus of the government see-saws between various tasks and budget constraints.

In all, I think the best we can hope for is to luck through the inevitable confrontation and hope that we can minimize and mitigate the effects.

As a Navy IT vet and unsatisfied user of the Navy Marine Corps Intranet (NMCI), I hope Mr. Gallagher is not insinuating that NMCI is used for offensive cyberwarfare. Its primary purpose is to provide enterprise-level IT services to all continental US shore based installations. (Shore means land for you landlubbers)

I don't trust Congress that much but I would not quickly condemn or defend Huawei and ZTE. There is a classified section in the report. Until you have read the classified section of the report, don't disdain the House Intelligence Committee for being anti-Chicom. Of course I understand that declassification takes forever.

P.S. In the Navy, you can informally address officers by saying Mr. and their last name.

Infinity4011, I don't think that there is going to be an 'inevitable confrontation' unless we in the United States go looking for one.

China would be suicidal to attack, in any fashion, their biggest trading partner. Sure, every once in a while, some bad/contaminated products get through but that is mainly because China even for home-grown and used stuff doesn't have the same consumer protection laws/regulations that the United States does.

I'm more worried about the warmongers here in America who seem to be bucking to take on every 'enemy' that America has BEFORE that country does thing one against us other than telling us where we can stick our noses, ala Iran.

In looking at the actions of China in the past decade, and all the veiled rumors and hints of espionage and cyber attacks emanating from that country, I see a lot of puzzle pieces fitting together to form the basis of a planned-out, coordinated attack on our nation. Undermine our economy, steal our military secrets, and build the basis for a future assault on our country's basis of power.

What does China have to gain? A whole lot. They gain the status of having knocked off the biggest kid on the block, they achieve the standings of having the world's largest economy, and they have nullified our ability to keep them from achieving some of their long-standing goals, like reconquering Taiwan, taking the Spratly Islands, and making South Korea, Japan, and Russia submit.

What does China have to lose? Their largest trading partner, for the moment. As their society shifts from a developing nation into a fully modern country they will start turning their exports into domestic products, as more and more people have the prosperity to use items that used to be manufactured solely for overseas consumption. While the disruption of their economy will be painful in the short term, long term they have a whole lot to gain from it.

Unlike the U.S., China has the kind of government that facilitates the development of a decades-long calculated plan to unravel their enemies from within. The U.S. can't do that because it doesn't have control over the country that China exerts. The U.S. is also hindered by policy changes brought on by political shifts every 4-8 years in which the focus of the government see-saws between various tasks and budget constraints.

In all, I think the best we can hope for is to luck through the inevitable confrontation and hope that we can minimize and mitigate the effects.

LOL sounds like the background story to FALLOUT 3, U.S. vs China. time for the residents to move out of Anchorage color me weird, but back in 2008, the Olympics in China, the Drummers section of the opening ceremony - I always had the vibe it sounded like a "war-chant" of sorts, like a "show off of force".

Having said that, I think neither the U.S. government/agencies nor China's equivalents give each other much credit. They both do "dirty deeds" for their own advantage and gain. China is just more organized about it.Bottom-line is - what's the use? We all live on the same, small rock called Earth. Why can't we just stop this childish, provincial nation-vs-nation bickering over short-sighted economic advantages and religious interest?!?

In looking at the actions of China in the past decade, and all the veiled rumors and hints of espionage and cyber attacks emanating from that country, I see a lot of puzzle pieces fitting together to form the basis of a planned-out, coordinated attack on our nation. Undermine our economy, steal our military secrets, and build the basis for a future assault on our country's basis of power.

What does China have to gain? A whole lot. They gain the status of having knocked off the biggest kid on the block, they achieve the standings of having the world's largest economy, and they have nullified our ability to keep them from achieving some of their long-standing goals, like reconquering Taiwan, taking the Spratly Islands, and making South Korea, Japan, and Russia submit.

What does China have to lose? Their largest trading partner, for the moment. As their society shifts from a developing nation into a fully modern country they will start turning their exports into domestic products, as more and more people have the prosperity to use items that used to be manufactured solely for overseas consumption. While the disruption of their economy will be painful in the short term, long term they have a whole lot to gain from it.

Unlike the U.S., China has the kind of government that facilitates the development of a decades-long calculated plan to unravel their enemies from within. The U.S. can't do that because it doesn't have control over the country that China exerts. The U.S. is also hindered by policy changes brought on by political shifts every 4-8 years in which the focus of the government see-saws between various tasks and budget constraints.

In all, I think the best we can hope for is to luck through the inevitable confrontation and hope that we can minimize and mitigate the effects.

LOL sounds like the background story to FALLOUT 3, U.S. vs China. time for the residents to move out of Anchorage color me weird, but back in 2008, the Olympics in China, the Drummers section of the opening ceremony - I always had the vibe it sounded like a "war-chant" of sorts, like a "show off of force".

Having said that, I think neither the U.S. government/agencies nor China's equivalents give each other much credit. They both do "dirty deeds" for their own advantage and gain. China is just more organized about it.Bottom-line is - what's the use? We all live on the same, small rock called Earth. Why can't we just stop this childish, provincial nation-vs-nation bickering over short-sighted economic advantages and religious interest?!?

Because we cannot afford our present lifestyle in America for everyone. We have to fight to protect it.

While I'm fairly sure that Chinese government has it's fingers everywhere is it really any different in the west? China spies on it's citizens western governments spy on their citizens. There is no real difference. Not sure any side is better than the other. In the end it's the normal population that gets shafted (and honestly it seems that Chinese government does care a bit more about it's population than western ones atm).

Sean Gallagher / Sean is Ars Technica's IT Editor. A former Navy officer, systems administrator, and network systems integrator with 20 years of IT journalism experience, he lives and works in Baltimore, Maryland.